Tag Archives: Personal

The “progressive” vision of a populace dependent on a central government and a European-style welfare state is now at hand. We march on the road to serfdom.

OK, so what can we learn and do? First, educate yourself in the benefits of liberty and free markets, then live your life as best you can. Be an example to others. As an investor, note how hospital stocks were up (yesterday) overall 9%. Industry leader HCA Holdings Inc. is up nearly 10% . Tenet Healthcare Corp. is up 9% to $27.21. Health Management Associate gained 8% and Community Health Systems rose by 6.4%. Medicare and Medicaid insurers were also up. Centene Corp. is up 10% . WellCare climbed 4%. Molina Healthcare Inc. also rose 3.16%.

But in the long-run (three to five years) these companies will be like the protected airlines during the era of the CAB–bureaucratic, sloppy and inefficient. You are better to look for winners in a market that is being deregulated and short the losers. When airlines became deregulated you wanted to own Southwest (low-cost operator) while shorting Eastern Airlines, American, Northwest Airlines, etc. I would rather short those companies as a hedge once they become fat and happy.

Lessons to learn

The book link: bureaucracy
Mises explains that the core choice we face is between rational economic organization by market prices or the arbitrary dictates of government bureaucrats. There is no third way. And here he explains how it is that bureaucracies can’t manage anything well or with an eye for economics at all. It is a devastating and fundamental criticism he makes, an extension of his critique of socialism. It has never been answered.

See the book: Omnipotent Government_Mises
At the close of the Second World War, Mises saw the destruction of the old world and the beginnings of a new one that did not look promising, especially for European politics. Socialism appeared to sweep all before it, and the social democratic variety in the West was not much of an improvement. Mises set out to explain and bitterly denounce the trends toward the total state, and demonstrate that Communism and Nazism were two sides of the same coin.

My Story: From Trader to Investor

At a reader’s request, I will relate my evolution from a commodity trader to a value investor. I started as a trader of physical (real) sugar to a futures trader at the MidAm. I have always been fascinated by markets or the interaction of economics with psychology which I now recognize as human action. I caught a big bull move in grains/soybeans in 1988. I learned that the money is made by riding big moves not by scalping or buying at the bid of 6.01 and selling at $6.02. I moved off the floor to trade upstairs because even then you could foresee that the trading pits would be turned into a food court or be eliminated.

Also, can you see doing this 6 hours a day? There are no old, bold traders.

The problem is that you need to trade big moves to make money and in trendless markets you trade against the commercial traders who have the edge. If you don’t have an edge then you are the sucker. Best to pull on the slot machines for fun. About 1988, I read about the Texaco Bankruptcy (see below) and looked at their balance sheet. Texaco bonds were trading at 70 cents on the dollar but the company had more than enough assets to pay 100 cents on the dollar. Wow, I thought, I can buy a dollar for 70 cents. Sure enough the bonds went lower to 60 cents, but I made decent returns within a year. I wanted to go where the edge was greater or where the markets more mis-priced. Of course, you don’t have the 10-1 leverage that you do in futures but leverage will only get you to failure faster if you don’t have a verifiable edge.

So I began to read as many books on investing that I could–only Graham, Buffett and Klarman seemed to make sense. I took time out to start an Internet company with a friend (www.art.com) and others, then returned to audit investment classes at Columbia Graduate School of Business. The real learning occurs when you apply what you have learned to the harsh reality of the markets.

I have travelled a ways but have much further to go in my learning journey.

Texaco Increases Estimate Of 1987 Loss to $4.9 Billion

By STEPHEN LABATON, Special to the New York Times Published: January 28, 1988

Texaco Inc. said today that it would report a loss of more than $4.9 billion for 1987 as a result of its restructuring and the settlement of its legal dispute with the Pennzoil Company.

In a document filed with the bankruptcy court here last month, Texaco had estimated a 1987 loss of $2.79 billion. The revised figure reflects a $2.1 billion write-down of the value of certain assets.

The company also said it faces $2.1 billion in claims from the Department of Energy, which has accused Texaco of overcharging for crude oil from 1973 to 1981, when price controls were in effect. Earlier this month, Texaco disclosed that the Internal Revenue Service might seek $6.5 billion in back taxes.

The company’s lawyers have contended that the claims by the Energy Department and the I.R.S. are highly inflated. Texaco insiders said yesterday that, even if the Government prevailed, the company had adequate financing to cover most of the claims. The claims are not expected to hold up the bankruptcy proceedings. The company hopes to emerge from bankruptcy this spring.

The stock market did not react strongly to today’s disclosures. In composite trading on the New York Stock Exchange, shares of Texaco closed at $37.875, down 87.5 cents.

The Federal claims and revised income figures appeared in a newly filed version of Texaco’s disclosure statement, a document being prepared to help shareholders decide whether to support or reject Texaco’s $5.6 billion restructuring plan. The plan must win approval by holders of two-thirds of Texaco’s shares, voting in a monthlong election.

Texaco entered bankruptcy proceedings last April after it lost a Supreme Court appeal over whether it had to post a bond of more than $10 billion to continue contesting the Pennzoil award.

A Texas jury in 1985 said Texaco’s acquisition of the Getty Oil Company had improperly interfered with a merger agreement between Pennzoil and Getty. Pennzoil was awarded $10.3 billion. As part of the reorganization, the Pennzoil claim would be settled for $3 billion.

At a hearing today in Federal Bankruptcy Court, the Securities and Exchange Commission questioned the adequacy of the proposed disclosure statement. Nathan M. Fuchs, a lawyer from the S.E.C.’s New York office, told a Federal bankruptcy judge that the statement failed to describe adequately the 16 stockholder derivative lawsuits that have been filed in New York, Delaware and Texas.

Most of the lawsuits accuse Texaco executives of mismanagement and have sought to recoup the money Texaco will lose in the Pennzoil dispute. Getty Executives Named

Several of the stockholder derivative suits also filed claims on behalf of Texaco against former executives at Getty and the J. Paul Getty and Sarah Getty trusts, both of which held large amounts of Getty stock.

Some of the suits also name as defendants the First Boston Corporation and Goldman, Sachs & Company. The two investment banks provided advice during Texaco’s negotiations with Getty. The suits charge that the advice led to the acquisition that sparked the dispute between Texaco and Pennzoil.

As part of Texaco’s reorganization plan, the company has said it will drop all of these derivative actions and will shield all of its employees from legal liability.

But Mr. Fuchs of the S.E.C. and three shareholders’ lawyers asserted at the hearings that Texaco had not provided an adequate explanation in the statement about why the company would want to drop a potentially valuable asset such as the right to assert claims against other parties. Statement From Lawyer

”The shareholders might actually be strengthened if they recovered $3 billion,” Mr. Fuchs said. ”The biggest weakness of the disclosure statement is that it does not say how Texaco can conclude that these derivative cases are without merit.”

After the hearing, a Texaco lawyer said the company was in discussions with the S.E.C. and expected to change the disclosure statement. ”If Mr. Fuchs is not satisfied, then we will continue to work with him until he is,” said the lawyer, Francis Barron.

Melvyn I. Weiss, a lawyer repesenting shareholders in one of the derivative suits, told Federal Bankruptcy Judge Howard Schwartzberg that the sole reason Texaco executives had decided to drop the derivative cases was to protect themselves.

”Texaco’s management is involved in a conflict of interest,” he said. Seeking an End to Litigation

Harvey R. Miller, Texaco’s lead bankruptcy lawyer, said the decision to drop the derivative suits was an effort ”to finally put an end to all the litigation in the case.” Lawyers for Pennzoil and the committee of Texaco creditors said they supported Texaco’s moves to drop the derivative suits and indemnify company executives.

Judge Schwartzberg requested that the shareholders’ lawyers meet with Texaco to propose new language for the statement. Another hearing will be held on the disclosure statement on Friday.

In an important amendment to the earlier disclosure statement, Texaco reserved the right to request that the judge approve the reorganization even if the plan is rejected by shareholders.

Conspicuously absent from the new disclosure statement were any objections by Carl C. Icahn, the chairman of Trans World Airlines Inc. and Texaco’s largest shareholder. Last week, a court ruled against Mr. Icahn’s effort to present his own plan to Texaco shareholders. The Icahn plan would have stripped Texaco of its takeover defenses.

David Friedman, a lawyer for Mr. Icahn, said his client was re-evaluating his earlier position and had not yet decided his next move.

The disclosure statement also estimated that Texaco would earn $626 million in 1988, $729 million in 1989, $941 million in 1990, $1.1 billion in 1991 and $1.2 billion in 1992.